What's on the menu at fast-food giant McDonald's? Beyond Meat (BYND 1.70%). The maker of plant-based protein last month agreed to supply the patty for a new plant-based burger to be tested in certain markets. In another recent deal, Beyond Meat signed up to create plant-based products for Yum! Brands' KFC, Pizza Hut, and Taco Bell restaurants.
Add to that 77% in stock market gains over the past year and a double-digit revenue increase last year -- and we've got plenty of reasons why people are talking about Beyond Meat. Now, the question is whether this dynamic stock can keep climbing. Or if investors may lose their appetite for the shares.
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Stock market star
Beyond Meat has been a stock market star since its market debut in May 2019. It's gained about 100% since that time. And the company posted triple-digit revenue gains every quarter. But the coronavirus pandemic put the brakes on that revenue trend. The temporary closure of restaurants and cafeterias hit Beyond Meat's foodservice business hard. For example, in the quarter ended June 27, U.S. foodservice revenue plunged 60% and international foodservice sales dropped more than 56%.
Retail sales remained strong throughout the year though. And that helped the company post a 36% increase in annual net revenue. Restaurants in some areas of the U.S. continue operating at reduced capacity. And many remain closed in other parts of the world that are on lockdown. So, foodservice continues to be a weak spot.
Once restaurant operations return to normal, Beyond Meat's foodservice business may post a big rebound. So, weakness in this area is a temporary situation. And that means it's possible Beyond Meat will once again post triple-digit revenue gains.
What is a concern, however, is the company's lack of profitability -- and increasing cost of goods sold and operating expenses. In 2020, Beyond Meat's net loss deepened to $52 million from $12 million in the previous year. Cost of goods sold climbed 44% and operating expenses increased 71%. Beyond Meat also is investing more in research and development. That expense rose more than 50% in 2020 year over year.
Making the best product
It's normal -- and wise -- that Beyond Meat invests in making its product the best. Here's why: Beyond Meat faces competition from big food companies like Tyson Foods, privately held companies such as Impossible Foods , and small start-ups like Memphis Meats. If Beyond Meat hopes to maintain its leading position, serving up a standout product is key.
Of course, we also can say there's plenty of room for all of these players. The plant-based meat market, at a 14% compound annual growth rate, is expected to reach $8.3 billion by 2025, according to a Markets and Markets report.
So, all of that is positive. But many rivals also may lead to pressure on prices. And that's not very positive. That would make it more difficult for Beyond Meat to reach lasting profitability.
As the coronavirus crisis eases and the foodservice business returns to normal, it will be important for investors to monitor Beyond Meat's expenses -- and whether investments have helped the company progress toward profitability.
Until then, I don't plan on adding Beyond Meat to my stock market shopping list.
